If the company decided to sell the new product at price of D.Cr. 8.20, that means the full fixed expense of 1.20 is covered and the company will make high profit. However, the selling price of D.Cr. 8.20 is very high and under this price the company will sell the new product at a lower volume than what the company planned sale volume in the budget and that will affect the company in the market as a strong competitor in the food manufacturing. According to the case, the company sales volume drop to 30 tons when the product was sold at the price of D.Cr. 8.2. Thus, my recommendation are as follows:
In this paper we extend the costing approaches and the two different approaches which include Variable costing and Absorption costing. This paper explains the difference between variable costing and absorption costing. All successful companies around the world use a strategic business plan that leads to a tactical plan and an operation plan which lead to the execution; both of the costing approaches, variable and absorption costing, to help their business flourish. Variable costing and absorption costing are not to be substituted for one another since both the approaches have their own benefits and limitations to any unique situation. In this document we will discuss the different approaches variable and absorption costing uses, the
The author was able to provide a detailed aspect of variable costing with clear emphasis on the importance of variable costing. According to the author, differentiating between fixed and variable costs is the first step in controlling costs. The article is helpful in understanding cost relationship and its correlation to cost absorption in manufacturing
official date of final exam: December 11, 2012. 2 BUS 322 (D1) – Tentative Syllabus Session 1 Date September-4 Topic Introduction, overview, group assignment, product costing systems (concepts and design) Process costing systems Managing and allocating support service costs Inventory decisions Strategic issues in investment decision Managing quality and time to create value Midterm Exam Cost management and strategy The nature of management control systems Understanding strategy Strategy, balanced score card, incentive systems Organizational design & responsibility accounting Case presentation Case presentation Case presentation Case written report is due at the beginning of session 13 Final exam Chapter 1 (H) Chapter 1 (A) Chapter 2 (A) Chapter 20 (H) Chapter 18 (H) Reading Chapter 2 (H)
Task 3 C and D Budget - is a financial plan for the future concerning the cost and revenues of a business. However, a budget is about much more than just financial numbers. Budgetary control is the way by which financial control is used within an organization. Budgets for revenue/income and expenditure are
Literature Review By reviewing the literature there is a different approach to this issue, a new way of thinking and acting towards cost management as a beneficiary of multiple opportunities and provides assurance of significant success. Various authors, after detailed research and supporting facts have reasonably concluded that the strategic
Fixed Cost = 25% Fixed Cost = 50% Fixed Cost = 75% Profit Loss 8 9 10 Next, consider a manufacturer that keeps safety stock for a product it makes. In many commodity products, profit margins are low. Suppose profit margin is 10%. The chart above shows the impact of a 10 day supply disruption on profits. Since safety stock can cover for some of the supply disruption, the higher the safety stock the lower the profit loss. For instance, if safety stock is 8 days, only 2 days of revenue is lost and hence the profit loss is for 2 days of sales only. The corresponding profit loss varies from 2% to 4% depending on how high the fixed costs are. Figure 2 (above) shows that a manufacturer with 75% fixed costs (in some manufacturing industries such as semiconductors, fixed costs can be very high) can lose more than twice as much as a manufacturer with
Abstract The decision to implement a new or change a current product costing system requires a lot of research and pre-planning. In order to determine the most effective product costing system management must decide which costs should be included in the product costs, at what level will direct costs be tracked, how indirect costs will be structured, and when to capture the indirect costs. Once all the costs have been identified and organized into fixed, variable, or overhead categories, management must then decide which product costing system would provide the output information necessary for important business decisions.
1.Critique the various pros and cons of the variable costing proposal that were presented in the meeting. What arguments would you add? One positive aspect of adopting the variable costing system that was described in the text, is some of the staff members do not seem to understand absorption
A cost analysis can be conducted in order by companies in order to estimate their cost when making decisions (Douglas, 2012). Managers can various methods to analyze costs for decision making purposes these are total variable cost, average variable cost, marginal costs (Douglas, 2012). In addition the company can use profit maximization and marginal revenue to help make decisions (Douglas, 2012). This paper will analyze two different scenarios and use various methods to help them make the decisions at hand.
Application of fixed costs can be misleading: Product costing comprising allocation of costs from activity centers to products and computing a products cost per unit. The major disadvantage of this method is that fixed costs are frequently large portion of the overhead costs being allocated for example, building and machinery, depreciation and supervisor salaries. Fixed costs are costs that doesn’t change in total but activity
In the study of fixed costs behaviour, authors have identified a certain range of activity over which the firm expects a set of cost behaviours to be consistent. They have termed this range “relevant range”, which is a term used to describe the range of activity (units of production) for which cost behaviour patterns are likely to be accurate. It is up to the cost accountant to determine the relevant range and make clear to management that estimates being made for activity outside of the relevant range must be analyzed carefully for accuracy.
Target Costing on Mercedez – Benz Mercedes-Benz (MB) is one of the world 's most successful car manufacturers since its establishment in 1886. They used target costing in the design and production of one of its products, the M-Class, which is a new sports utility vehicle model, in response to their first time suffering loss in 1993 because of cost inefficiency and problems with material purchasing and adapting to market changes. MB started developing a range of new products such as the C-Class in 1993, the E-Class in 1995, the new sportster SLK in 1996, and the A-Class and M-Class All Activity Vehicle (AAV).
cco Management Accounting Tutorial 5 15-3. List and briefly describe 4 major influences on pricing decisions Customer Demand: the demands of customers are of paramount importance in all phases of business operations, from the design of a product to the setting of its price. Product-design issues and pricing considerations are interrelated, so they